Capital Gains and Games

It's Ony A "Hot Tub Confession" If...

Stan Collender — Sun, 14 Mar 2010 18:40:07 +0000

ATTENTION TAEGAN GODDARD...A "hot tub confession" such as the one you say was made yesterday by Utah House Majority Leader Kevin Garn is a confession made while in a hot tub rather than a confession about being in a hot tub.

To say that least, that would have been an interesting visual that would have been tailor-made for TMZ.

And The 6 Republican-Appointed Members Of The Obama Deficit Commission Are...

Stan Collender — Sun, 14 Mar 2010 18:10:58 +0000

Rep. Paul Ryan (WI)
Rep. Dave Camp (MI)
Rep. Jeb Hensarling (TX)
Sen. Judd Gregg (NH)
Sen. Michael Crapo (ID)
Sen. Tom Coburn

With the possible exception of Coburn, this list was predictable. It includes the senior GOP members of the House and Senate Budget Committees and the House Ways and Means Committee. Crapo is six down from the top of the Senate Finance Committee and Senate Republican leader Mith McConnell (KY) had to skip over two comparative moderates -- ranking member Chuck Grassley (IA) and Olympia Snowe (ME) -- to get to him, but he's also on budget. Coburn is not a member of budget, finance, or appropriations, but he is a gadfly (read: pain in the ass) when it comes to spending and can be expected to talk about earmarks and pork at every possible opportunity.

House Democrats are the only ones who have yet to name their appointees and there are indications that will happen as soon as the health care vote is taken later this week. The word is that many members and groups within the House are angling for one of the three slots and the leadership is taking its time choosing among them.

Anyone who reads CG&G knows (here, here, and here, for example) that I haven't had much hope for this or any other budget commission. None of the Democratic or Republican House and Senate appointees change my mind about its prospects.

SNL Hits One Out of The Park On Massa

Stan Collender — Sun, 14 Mar 2010 15:45:04 +0000

This will put a smile on your face. Didn't you ask at least one of these questions yourself last week?

Financial Reform Is About To Be Gunned Down In The Senate

Pete Davis — Sun, 14 Mar 2010 02:47:30 +0000

Next Monday, Senate Banking Chair Chris Dodd (D-CT) will introduce his financial reform bill without Republican support, despite pledges of Senators Richard Shelby (R-AL) and Bob Corker (R-TN) to work with him. Our recent worst financial crisis since the Depression cries out for major changes, but our broken government may fail to enact them. Absent public outcry, heavily financed industry lobbying will gun down financial reform in the Senate this spring.

Why?

Consumer Financial Protection Agency -- Give it too much independence and authority, and it might stop financial predation of consumers, or it might stop financial innovation. Which is it? It all depends on where you sit. Obviously too many people of insufficient means became homeowners, at least seven million of whom have or will face foreclosure. Were they speculators who deserve what's coming, or were they taken advantage of by mortgage companies gobbling up quick profits by selling the American dream without asking too many questions? Housing a CFPA within the Fed or the FDIC or Treasury would be in direct conflict with their duties to regulate banks. It would be like putting the district attorney in charge of public defenders. An independent CFPA could damage the industry and probably would, until it was captured by the industry like most other Washington regulatory bodies. I would note that we demand lots of consumer protection for cars, drugs, food, and baby strollers, but comparatively little when it comes to new financial products.

Derivatives -- Exchange trading of standardized products and increased transparency sounds good until you start talking with end users of jet fuel, agricultural products, metals, etc., who had nothing to do with causing the financial crisis, but who will incur increased costs. Any exceptions you make for end users will eventually be broadened by Congress to gut these protections and would lead to the next financial crisis.

Too Big To Fail -- At least there's some bipartisan agreement here. Set up a council of regulators with clear authority to take apart large financial institutions of any kind. Increase capital requirements, and put limits on leverage. However, the Administration would go one step further and leave some Senate Democrats and most Senate Republicans behind by imposing a tax on institutions with assets over $50 billion of 0.15% of their liabilities. The idea is to tax risk and use the proceeds to repay the taxpayers for TARP. This populist appeal runs into problems when you start looking at who would pay and how responsible they were for this financial crisis or might for the next one. Most of the bad actors are gone already. If similar taxes aren't imposed on other world financial centers, our affected institutions would labor at a competitive disadvantage or shift operations and jobs overseas.

These issues are not easily resolved, but that doesn't mean we should stand by and watch financial reform get gunned down in the Senate. Our kids are going to have plenty of our debts to pay for without leaving them unprotected against the next financial crisis.

Thank You Marjorie Margolies-Mezvinsky

Pete Davis — Fri, 12 Mar 2010 23:13:33 +0000

I've always wanted to thank Marjorie Margolies-Mezvinsky (D-PA) for her courageous deciding vote for President Clinton's 1993 deficit reduction bill. Her Republican colleagues jeered her as she walked down the aisle to cast her vote with shouts of "Bye, Bye Marjorie!" Her crime -- voting for the Omnibus Budget Reconciliation Act of 1993 that reduced the FY94-FY98 deficits by an estimated $496 b., with $241 b. of tax increases and $255 b. of spending cuts. The bill capped a 12-year deficit reduction effort, leading to the budget surpluses of FY98-FY01. She paid the political price, losing her seat in suburban Philadelphia after her first term in office, but she set the U.S. economy on course for its strongest decade since the 1960s.

Now that we face the hard choices on reining in 10% of GDP deficits and runaway health care costs, who in today's House of Representatives will provide the deciding vote in favor of the Senate health reform bill, H.R.3590? Whoever it is may lose their seat. Charlie Cook recently said, "If current trends continue, the Republicans could take the House." That's what happened in 1994. As then, there is no easy bipartisan solution to our health care and deficit problems. The Senate version of H.R.3590 is flawed to say the least, but, in my opinion, it's a lot better than doing nothing. We have to attack inefficient and ineffective health care and unsustainable deficits. If we shy away, we will suffer prolonged low growth and high unemployment. Sometime before the start of the Easter recess on March 26, 2010, we'll find out whether another Marjorie Margolies-Mezvinsky can be found.

Re: Earmarks, cont.

Bruce Bartlett — Fri, 12 Mar 2010 13:44:33 +0000

It's obviously true that earmarks are not a significant cause of rising federal spending; eliminating all of them will save at most one percent of the budget. I've always suspected that this is the main reason why right wingers focus on them so obsessively--it makes them look tough on spending while actually doing nothing meaningful to cut it.

That said, I think earmarks are underrated in terms of their contribution to corruption. It's really poisonous when members of Congress can so easily direct federal spending to a favored business in order to attract campaign contributions or just the mistaken belief that they are doing something for their district by helping out a local company.

Furthermore, I think the idea that if Congress stops earmarking that they will somehow disappear is ludicrous. It will just increase congressional pressure on the administration to include favored projects in the president's budget, which for some reason is always treated as being earmark-free.

In fact, the administration's budget is filled with its own earmarks. We know this because when presidents run for re-election they are constantly telling people that they will get the new bridge or highway they have been hoping for if they just put him back in the White House. We also know that administrations commonly use pork to buy votes in Congress.

While it's true that the administration is somewhat more likely to evaluate projects on a cost-benefit basis, it's naive to think that it is entirely immune to the same political pressures as Congress.

Update On Waste, Fraud, And Abuse: Kansas City To Close Half Its Schools

Stan Collender — Fri, 12 Mar 2010 11:42:18 +0000

My column from yesterday's The Fiscal Times noted that state and local governments around the country, which because of balanced budget requirements and dramatically falling revenues are facing some very tough times, are being forced to make difficult decisions.

But this story in yesterday's The New York Times about Kansas City deciding to close half its public schools and reduce the payroll by around 20 percent makes the decisions by other states to close rest stops along some highways appear to be insignificant.

The Times' story indicates that the schools and school board in Kansas City have been in terrible shape for years and, therefore, that this decision was almost inevitable. Still, the precipitating event was was the projected $50 million deficit (out of a total budget of $300 million) in the midst of the economic downturn and the prospect that it wasn't going to get any better any time soon.

Given that the number of students in the KC schools had fallen by 50 percent, closing half the schools might in some sense qualify as eliminating waste, and the failure of the school board to act before now might be considered fraud and abuse.

Still, closing half of all schools at the same time shows either that the definition of waste, fraud, and abuse might need to be expanded, or that the budget changes that are already happening and will keep occurring for a while are going to go way beyond what that phrase traditionally has implied.

Re: Earmarks

Stan Collender — Fri, 12 Mar 2010 11:16:17 +0000

I agree with Andrew: This sudden race in the House to see whose holier-than-thou on earmarks is a good thing. But there are three reasons why no one should get too excited about the recent developments:

1. As Andrew notes and I've remarked on previously, eliminating earmarks doesn't actually reduce spending; all it does is change who makes the decision from Congress to an executive branch agency. Unless the appropriation is reduced at the same time the earmark is eliminated, which no one is suggesting, the amount that will be spent will remain the same.

2. Also as Andrew points out, even if all earmarks were eliminated and appropriations were cut by a corresponding amount, the amount that spending would be reduced would be relatively small and certainly not enough to make an appreciable difference in the deficit outlook. It's not that $20 billion or so isn't a great deal of money. It's just that $20 billion a year less in discretionary spending is barely a rounding error compared to the magnitude of what will need to be done when deficit reduction is the correct fiscal policy.

3. The earmark limits are only being proposed in the House. So far there has been no corresponding effort in the Senate...and none is expected. That almost certainly means that there will be earmarks in fiscal 2011 but they'll emanate from the north rather than the south side of Capital Hill.

Yellen to the Fed

Bruce Bartlett — Fri, 12 Mar 2010 04:38:42 +0000

The Wall Street Journal is reporting that San Francisco Fed President Janet Yellen will be nominated to be Vice Chair of the Federal Reserve Board. Since she is already a member of the FOMC, however, this doesn't really change the direction of monetary policy. The Journal says that persons have been selected for the other two Fed vacancies. It is likely that all three names will be sent to the Senate simultaneously.

Addendum

Former Fed Governor Larry Meyer has a good comment here.

Professional Forecasters Agree: Stimulus Added to Growth

Bruce Bartlett — Fri, 12 Mar 2010 03:01:41 +0000

Friday's Wall Street Journal has the latest survey of 54 professional economic forecasters. Among the questions they were asked was this: "What would the real gross domestic product (annualized growth rate) be/have been for the following period absent the American Recovery and Reinvestment Act?"

The average response said that growth would have been -0.93 percent last year in the absence of fiscal stimulus. Since growth was essentially zero on a 4th quarter over 4th quarter basis--the measure favored by forecasters--this suggests that the stimulus added almost a full percentage point to real GDP growth in 2009.

For 2010, the forecasters say that growth would be 2.2 percent in the absence of stimulus. Since the average growth forecast for this year is 3.0 percent by these same forecasters, this suggests that the stimulus bill will add 0.8 percent to growth this year as well. In other words, the real GDP growth rate this year will be more than a third higher than it would be in the absence of stimulus.

On balance, 75 percent of the forecasters said the stimulus bill was a net positive for growth, 12 percent said it was a net negative, and 14 percent said neither.

In terms of the unemployment rate, the forecasters say that the February rate would have been 10.4 percent in the absence of stimulus, rather than the 9.7 percent rate reported by the Bureau of Labor Statistics last week.

This doesn't close the book on whether the stimulus legislation worked or not, but it should be remembered that the economists participating in this survey are not political hacks at some "think tank" or ivory tower academics, but people paid on the basis of being right about forecasting the economy. Their words ought to carry a bit more weight than those that don't forecast for a living.